Dealing With Tax Debts
The following generally outlines the steps and alternatives for dealing with tax debts. It is not intended to be an exhaustive list, but rather sets forth the normal techniques for dealing with tax debts.
- The first step is to determine if the tax was properly assessed. Is the tax assessed at the right amount? Do you owe the tax? Is it cost-effective to revisit the amount of the tax?
- The next step is to consider the statute of limitations. Have they expired? When will they expire? How will your strategy for dealing with the debt affect the statute of limitations?
- The next step is to consider the applicability of the innocent spouse rules. Do you qualify? Will this help eliminate the tax debt?
- The next step is to consider requesting a new audit or penalty abatement. Can you reduce the tax debt by substantiating the correct tax liability? Do you have good grounds to have the penalties abated?
- And finally, the last step is to consider the alternatives for dealing with the payment of the tax liability.
Payment Alternatives
- Full pay: The first and best alternative for dealing with tax debt is to pay it in full. This stops collections activity, stops the running of interest charges, and stops the accrual of failure to pay penalties. The issue for most taxpayers is that they are unable to fully pay the tax debt. If they could, they would, and the tax debt would not be a problem.
- Installment agreement: The next best alternative for paying a tax debt is an installment agreement. This is where you enter into an agreement with the IRS to pay the tax debt over time by normally making monthly payments. This does not usually stop the accrual of interest or failure to pay penalties. Nevertheless, if you can pay the debt in full by making monthly payments over a couple of years or less, this is a very useful alternative. The process allows for much more flexibility in the way of your personal living expenses.
- Offer in compromise: The next best alternative is to consider an offer in compromise. Generally, an offer in compromise is an alternative that can be used where it is not possible for you to fully pay the tax debt under the first two alternatives above. Under this alternative, you reach an agreement with the IRS to settle your tax debt for a fixed amount that is less than the tax debt amount. The amount you have to pay is generally the sum of your net equity in your assets plus what you can pay monthly over the next four or more years. There are very stringent rules regarding your personal living expenses.
- Currently not collectible: The IRS will stop collecting your tax debt if they determine that it is currently not collectible. However, interest and penalties will continue to accrue during this period of time and the IRS will continue to follow-up with you periodically to check your financial stability.
- Bankruptcy: The last alternative is bankruptcy. All tax debts are not dischargeable in bankruptcy. For example, the trust fund recovery penalty is not dischargeable. Also, for income taxes to be dischargeable, they must be more than two years old. There are other exceptions to dischargeability of tax debts that need to be considered as well. Basically, the first four alternatives deal directly with tax debts, the bankruptcy alternative deals with all of your debts, including the tax debts.
Reach Out To Our Law Office For Tax Debt Solutions
Schedule your initial consultation by calling 850-222-0013 or by completing our online contact form. Williams & Associates, P.A., also provides Spanish-language services and flexible appointment scheduling.